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Dubai rents continue to drop says report

The average rentals fell across the residential, office and retail sectors in Dubai during the first quarter owing to a steady over-supply, said real estate expert Jones Lang LaSalle (JLL) in its latest report.

The biggest decline was seen in the villa rentals which fell by 12 per cent year-on-year, while the average apartment rents continued to decline by 5 per cent with the biggest drop seen in the lower-end segment, the JLL report stated.

The rents in International City and the lower-end apartments within Dubai Marina continued to drop at a higher rate than higher-end apartments in Burj Khalifa Downtown and Palm Jumeirah, the JLL said in its report.

However, the report said the villa rents have stabilised in the higher-end and more established residential developments such as Palm Jumeirah compared to last quarter.

Although there are pockets of stabilisation within Dubai’s high end residential sector, the overall residential market will continue to experience a situation of oversupply and prices are expected to decline further over the remainder of 2011, said the report.

Rents are likely to continue their downward trend during 2011 as new units enter the market in both Dubai and Abu Dhabi, it added.

A total of 7,900 units were completed in the first quarter, bringing the total residential stock to around 317,000 units. A further 20,700 units are due to be completed by year end, the property expert said. Some major residential projects have restarted and are scheduled for completion in first half of 2012.

According to JLL, the average apartment asking prices remained relatively stable over the period at Dh980 per sq ft. However, the average achieved prices for apartment fell by about 7 per cent to Dh773 per sq ft.

Villa prices too have seen a similar trend. Asking prices remain unchanged, while achieved prices have fallen around 6 per cent to Dh883 per sq. ft, the report added.

‘Villa rents declined by 2 per cent this quarter, slightly more than the previous one as more landlords adjusted rents to compete with lower apartments rents,’ the expert said.

Rents for high-end villas on Palm Jumeirah remained relatively stable while rents in The Springs and Arabian Ranches have declined more during the period.

This trend is expected to continue over the remainder of 2011 as more mid range villas will be handed over in the Jumeirah Village and Jumeirah Park areas. Landlords in this segment are also more inclined to lower rents to keep their property tenanted to help pay for their mortgage obligations, the report said.

On the retail sector, JLL said the malls continue to experience vacancies of 15 to 30 per cent as retailers have taken advantage of greater competition among centres to close poor performing stores.

Thus, landlords are becoming increasingly realistic in rent negotiations, with many offering tenants more attractive and flexible terms based on sales turnovers, the JLL report stated.

On the office market scenario, the expert said Dubai continues to see new supply entering the market pushing citywide vacancy rate up to 44 per cent. Prime rent declines abated, with average prime rents remaining stable in first quarter after a hefty 21 per cent decline in Q4 2010.

‘Unrest in other Mena countries could increase demand for Dubai office space over the medium term as companies relocate to more stable markets. This demand is, however, unlikely to offset additional supply levels, resulting in a further decline in average rentals during 2011,’ the JLL report said.

Commenting on the performance, JLL said the average rental rates continued to decline in the residential sector this quarter, but the rate of decline has slowed. The fourth quarter data indicates that transaction values and volumes have however increased compared to the previous year.

Provided mortgage availability improves, lending rates remain low or fall further, and the government improves residency visa rules for property purchasers, then we believe 2011 will see the build up of this buying momentum and selective price stabilisation, the expert added.-TradeArabia News Service

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